Panel Vector Error Correction Modeling of the Impacts of Demographic Indicators on Human Development in Nigeria

This study examined the impact of key demographic indicators on human development in Nigeria using an advanced panel econometric framework. Annual panel data covering the period 1994-2024 across Nigeria’s six geopolitical regions were employed to analyze how life expectancy at birth (LEB), fertility rate (FR), urbanization rate (UR), dependency ratio (DR), and female labour force participation (FLP) influence the Human Development Index (HDI). The study employed descriptive statistics, first- and second-generation panel unit root tests, Johansen Fisher panel cointegration tests, Dynamic Panel Fully Modified Ordinary Least Squares (FMOLS), Panel Vector Error Correction Models (VECM), and Dumitrescu–Hurlin as well as panel pairwise Granger causality tests. Descriptive statistics revealed considerable volatility and non-stationary behaviour in the level series of all variables. However, stationarity was achieved after first differencing, indicating integration of order one, I(1). This was confirmed by both first-generation (IPS) and second-generation (CCE-ADF) unit root tests. The Johansen Fisher panel cointegration results provided strong evidence of a stable long-run equilibrium relationship between HDI and the demographic variables. Long-run estimates obtained through dynamic panel FMOLS showed that life expectancy at birth and female labour force participation exert significant positive effects on human development, while fertility rate, urbanization rate, and dependency ratio have negative long-run impacts. These findings highlight the growth-enhancing role of improved health outcomes and women’s economic participation, alongside the development constraints imposed by high fertility, demographic dependency, and unplanned urban expansion. Short-run dynamics analyzed through the Panel VECM revealed that increases in life expectancy and female labour participation immediately enhance HDI, whereas higher fertility and dependency ratios reduce human development in the short term. Urbanization exhibited mixed effects, with negative contemporaneous impacts but positive lagged effects, suggesting that rapid urban growth initially strains infrastructure and social services but contributes to development once adjustment occurs. The error-correction term was negative and highly significant, indicating a strong annual convergence speed of about 70% toward long-run equilibrium. Finally, Dumitrescu-Hurlin panel causality tests revealed strong unidirectional causality from all demographic indicators to HDI, alongside bidirectional causality between HDI and both life expectancy and female labour force participation. The study concluded that demographic factors played a critical and enduring role in shaping Nigeria’s human development path and recommended improvement in health investment, gender-inclusive labour policies, fertility reduction, strategic urban planning, and effective management of demographic dependency for sustainable development.